The Divorce is Final … but is it really over?

Once you’ve received your Divorce Decree you may think: “Thank heaven that’s done.” But is it?  There are several things that tend to fall through the cracks and regrettably, these may not get squared away until your loved ones discover them after your death.

Generally speaking, once you are divorced, Colorado law provides some safeguards in the area of your “beneficiaries” under your estate planning documents, your life insurance policies, your bank accounts, etc.  The law states that if you are divorced, your ex-spouse is treated as if they died before you did. So, for example, if your pay-on-death designation for your savings account lists first your spouse (now ex-spouse) and then your children, your children would be able to collect those funds because the law treats your ex-spouse as if they predeceased you. 

The same is true if you hold real estate as joint tenants.  A joint tenant would usually receive the entire property upon the death of their co-owner, but if you are divorced, this does not happen.  However, perhaps you were awarded the residence in the divorce.  You have each gone your separate ways and no one gives the title on the property a second thought.  If you do not follow through on a post-divorce deed removing the ex-spouse from title to the property, it can leave a mess for your loved ones.  Although the court order separating your property in the divorce proceedings is effective, it may require your children find the ex-spouse, get them to sign a deed, and have it recorded in order to clear up title to the home.  If the ex-spouse cannot be found, or will not cooperate, they may need to seek a court order, with its attendant delay and expense, before they can deal with the property in your estate.

Similarly, your life insurance policies are generally governed by Colorado law, and so, just like your bank account, your ex-spouse is treated as if they had passed away prior to you.  However, there is a glaring hole in this if your insurance policy happens to be governed by ERISA (Employee Retirement Income Security Act).  This is a federal law that takes precedence in certain situations and there is no provision in it for the exclusion of an ex-spouse on life insurance policies.  We have seen many situations where an ex-spouse ends up collecting insurance proceeds that you likely would have wanted to go to your children, or perhaps your current spouse.  But, because you did not think to update your beneficiary designation following the divorce, the ex-spouse may end up receiving the life insurance, despite your intentions.

So, once the divorce is over, it is important that you take a good look at all of your assets, how the assets are titled, and how your beneficiary designations are titled.  Review and update any pay-on-death beneficiary designations for your bank accounts, investments, and retirement accounts with the financial institutions holding those funds.  Review all of your insurance policies and make sure the beneficiaries are up to date.  And, finally, review the disposition of any real estate impacted by the divorce and ensure that title to the properties are updated accordingly. 

Divorce is often difficult and painful, and it is understandable that once it is done, you wouldn’t want to think about it anymore, but just a few final steps will give you peace of mind and make things easier on your beneficiaries.

Written by Barbara Butler